The European Financial Stability Facility, having mandated for a three year deal that is likely to be priced this week, is the best borrower to re-open what must be the most panicky sovereign, supranational and agency bond market in history.
Some people might have preferred to see KfW in the market or the EU — albeit not with a 30 year deal — or maybe even a Washington supranational. But a successful print by one of those names — borrowers that have proved themselves impervious to the strife troubling other issuers — would have told us nothing about the health of the market in this new year.
Instead, a name that is the leading indicator of sentiment towards the debt crisis is about to show us what sort of state we are in after a gap in new euro benchmarks going back to early November. It is a short maturity too so will have broad appeal and thus will not test the market to its extremes — unlike the borrower’s last outing, a nerve-wracking 10 year print back in November.
Instead, the deal will pose the question of whether or not the market is comfortable with European quasi-sovereign risk in a defensive maturity in a modest but not insignificant size for an SSA benchmark in euros — €3bn. This deal will be a stepping stone for the rest of the market.
It will not attract the sort of €44.5bn order book that the issuer’s inaugural deal priced almost a year ago had. Then again, nor should it.
SSA bankers, borrowers and investors can take comfort from a decent order book free of the whiff of large orders from the lead managers masquerading as bank treasury interest.
Of course, that takes no consideration of pricing into account. This deal can be priced to succeed and under the circumstances, perhaps it should. After all, why risk a shabby looking trade for a basis point, especially given how far the EFSF’s yields widened last year?
There is a weight of responsibility on and an opportunity for the EFSF and its lead managers this week, not just to raise money for Portugal and Ireland, but to help create market conditions that can support the sector’s other borrowers in this most crucial of years.